20 Years of Arnoldshain Seminar
“20 Years of Challenges for Integration, Globalization, and Development”
September 14 – 18, 2015
Frankfurt and Arnoldshain / Taunus

Moncarz, Pedro

Abstracttitle

An ex-ante analysis of the welfare effects of changes in world prices of agricultural commodities: the case of Uruguay

Co

co-authored with Sergio Barone, Ricardo Descalzi

Shortabstract

During most of the past decade, Uruguay benefited greatly from an increase in the
international prices of its main commodity exports. However, taking into account that
most of the country's exports are commodities that are used as inputs in the production
of staple goods, there exists the potential to hurt a sizable part of the population,
especially households at the lower end of the income distribution.
Like in Moncarz et al. (2014), we run a Vector Error Correction Model (VECM) to estimate
the long run elasticities of consumer prices with respect to international prices of
Uruguay's main commodity exports. Then, following the methodology pioneered by
Deaton (1989), we run nonparametric regressions to obtain the welfare impacts on
households along the expenditure distribution. The results show that, ex-ante, poorer
households are the most negatively affected through the increase in consumer prices,
especially of food and beverages (see Figure 1).
On the other hand, a second channel works through the labour market. Here, we
estimate an extended Mincer-type equation to obtain the elasticities of wages to changes
in international commodity prices. The results show that poorer households benefit,
while there is a reduction of income for those at the upper end of the distribution (see
Figure 2).
Overall, all households are affected negatively, with losses ranging between 10% and
14%, with poorer households suffering the most (see Figure 3).